Strengthening the social safety net

The COVID-19 pandemic shone a spotlight on the weak points of the social support system. It placed further downward pressure on priority populations already facing severe hardships in the economic and social domains, including rising homelessness and food insecurity, widening social and economic disparities, and digital access divides.

Our government, like many around the world, has funneled significant resource into employer-focused wage subsidies and short-term financial supports. While government agencies have rallied to deliver exceptional support to individuals through the pandemic in New Zealand, it is now up to policy makers to embed long term changes.

In this context, the 2021 Government Budget sets the stage for how social supports will be made sustainable post-recovery.

Budget 2021 included an uplift in benefit rates for those on the main benefit of $20 per week in July 2021, and an additional uplift for main benefit recipients and for families in April 2022. These changes were unexpected, having had little signaling in the lead up to Budget day, but are a welcome alignment to the recommendations of the Welfare Expert Advisory Group (WEAG).

The increases have been explicitly linked to the WEAG report which recommended increases at two levels – adequacy for basic needs and adequacy for participation in society. It is worth noting that the Budget increases are aligned with the minimum recommendations of adequacy for basic needs and costs. This means the increases better enable recipients to cover their expenses for housing, food, utilities and transport, without going into debt.

The WEAG report identified potentially larger and more generous increases to enable adequacy for meaningful participation in society. These would enable beneficiaries to participate in relatively modest activities such as planning a special event, playing a sport or purchasing presents for family members. It is particularly the latter type of activities that would actually have a significant impact on physical and mental health: as we know, the social determinants of health far outweigh other determinants of health and are also a big driver for inequities.

These additional activities have particular benefits for growing children, for building stronger family bonds, and for creating social cohesion and a sense of community. It is at this level of social engagement where we can prevent alienation and exclusion. The increased benefit levels in this Budget still do not allow families to undertake activities that many of us take for granted. So the increases proposed only start the journey – they don’t yet fully deliver on the intent of the WEAG report.

The Budget also includes an increase to the minimum wage to $20 per hour, a change that has been met by concern from some employers’ groups but has been welcomed by others. The minimum wage is earned disproportionately by young people, women, Māori and Pacific, refugee and migrant, and disabled workers. The shift brings the minimum wage closer to the calculated ‘Living Wage’ but not fully to that level of $22.75 per hour. It is also more likely to be earned in retail and hospitality – both industries that have been negatively impacted through COVID.

In terms of the social safety net, the increase in the minimum wage and the benefit rates is positive.

Research shows that directly resourcing individuals and families is the most effective way to address social equity – direct financial payments that enable them to plan for the future, purchase what they need, and build resilience to financial shocks.

Creating a financial buffer and sense of security for individuals and families enables greater contribution to social and community resilience – the ability to lend a neighbour some money for example, or to invite someone over for a cup of tea and biscuits.

This flips the orthodoxy that government knows better than individuals and families when it comes to identifying needs. Having control over your money, and how you spend it for the benefit of your family, builds a sense of self-determination that is positive for mental wellbeing and financial decision making.

Resourcing individuals and families also creates a positive feedback loop to economy and business. Those on minimum wage and benefits are most likely to spend additional dollars each week to support their basic and medium-term needs. The marginal savings rate is low in these groups – especially given that they are often employed in industries with low job security and higher turnover. This is a challenge to financial resilience but also offers an opportunity, since more robust financial resilience translates to a stimulation in demand for goods and services - often in local businesses.

As unemployment remains higher post-COVID (although not as much as initially feared), there has been concern that minimum wage increases will mean a reduced ability to hire or reduced hours being offered, and benefit increases will create a disincentive to be employed.

Research shows that the reasons people work are varied – and acquiring the motivation, capability, capacity and support to work are not simplistically linked to the financial tradeoff between benefits and wages. In addition, workers are nearly always better off in employment, even when there is a strong social safety net. The increase in the minimum wage, for example, will translate to a greater increase for full-time workers than the increase in the benefit rates proposed.

The persistent barriers to employment are complex and sometimes intergenerational. The approaches that work best are those that address these barriers through culturally-informed, humanistic supports, and work with communities to invest in the capabilities and capacity to maintain work. Alleviating financial pressures and stress is a positive enabler for individuals to participate in these programmes and to gain sustainable employment.

As we look to the future, the opportunities are on the other side of the ledger – creating opportunities for, and investing in people’s ability to participate in, meaningful work. 

The disruption of COVID required us to confront both the value of work to our society and what meaningful work needs to look like. The concept of ‘essential workers’ highlighted the inadequate working conditions or value placed on those people who were most vulnerable during the pandemic – retail workers, healthcare workers and cleaning staff as examples. Closed borders have challenged our understanding of the migrant workforce and the conditions under which agricultural and casual labour operates. Many people also took the time to consider their personal level of consumption in the economy, and the opportunities to make consumption more intentional and targeted to sustainability and local businesses.

As we see increased automation in primary and light industrial sectors that are important to Aotearoa, we need to consider opportunities to lift productivity while also improving the working conditions and job satisfaction for all workers – especially those in minimum wage and low wage employment.

When you combine these disruptions with the reality that automation, artificial intelligence and robotics are going to fundamentally change the future of nearly every workforce, there is both a powerful opportunity and a looming precipice.

There are some indications of this in the Budget: the training incentives allowances, an increase in student allowance rates, $44m for small business to transition to digital and technology skills, and ongoing reform to Tomorrow’s Schools. But there is still no cohesive vision for key sectors, and initiatives such as the immigration settings reform carry a risk of being sub-optimal without this cohesive vision. For example, the Government is curbing skilled migrant applications in order to lift average wages in New Zealand, whilst at the same time signalling that nurses and ancillary health workers will not receive a pay rise.

Government has an opportunity to engage with workers and employers to create a blueprint for really good work that enables individuals and families to pursue the broader set of things that make life worth living: learning, growing, caring responsibilities, mental health and resilience through connection and environmental restoration. To tackle this, we would expect to see more in the Budget and policy platforms around digital education, future workforce strategy for key sectors, and productivity enhancement plans.

Taking the first step to improving the level of resourcing for individuals and families is certainly important. The Government has laid out a Budget that is conservative on debt, makes shifts to increase equity through taxation, and thus fund a strengthening of the social safety net.

It is now time for us to create sustainable and long-term investment in meaningful work, and the skills and capacity of future generations to participate fully in the opportunities available to them.